IT vendors remain bullish on outsourcing

Bangalore: Indian tech service vendors such as Wipro Ltd and Cognizant Technology Solutions continue to be bullish on growth in outsourcing of software services despite concerns of a softening US economy triggered by the mortgage crisis in the subprime lending markets.

Indian companies say the demand from customers such as General Motors Corp., Bank of America and Citibank NA to outsource application development and software maintenance projects to local vendors continues to be strong and “is business as usual”.

“If you look at the IT (information technology) services industry, it is not cyclical with the economic slowdown and if there is a recession, it (the impact) will be minimal. We don’t see any impact,” said Lakshmi Narayanan, vice-chairman of Cognizant.

Cognizant, a New Jersey, US-headquartered software services firm that has most of its operations in Indian cities such as Chennai, Pune and Kolkata, competes for orders from customers in the US and Europe as an Indian IT service provider along with Wipro and its peers Infosys Technologies Ltd and Tata Consultancy Services Ltd.

“There is clearly no sign of any demand slowdown. In fact, the demand is catching up in some of the new areas such as Europe,” said Narayanan.

India’s software exports for the year to March was around $39.7 billion (Rs1.63 trillion) and is expected to grow around 27% in the current fiscal year, said National Association of Software and Service Companies (Nasscom), the industry lobby.

“There will be concerns if the crisis in the financial sector in the US spreads to the economy,” said Kiran Karnik, president of Nasscom.

“But there are no clear indications for now.”

Analysts say the financial sector crisis in the US could have an impact on IT spending by banking, financial services and insurance customers, who may delay taking a decision on IT budgets for next year. This could, in effect, have an impact on outsourcing contracts.

“It will be short-term. The decisions could be delayed because of the uncertainty. But it is not going to stay on forever,” said Avinash Vashistha, head of Tholons Inc., an offshore services advisory firm, which helps customers to choose between different IT service providers across several locations.

Big IT spenders in the US and Europe plan their budgets between six months and a year in advance and companies say customers have not shown any slowdown in their spending nor have they hinted at an imminent slowdown.

“The growth in spending continues. It is business as usual for customers,” said Girish Paranjpe, president of the financial solutions division for Wipro Technologies, the global tech services arm of Wipro.

“Given the demand environment for the next one year, we see a great deal of confidence and it is unlikely that there would be a slowdown,” said Narayanan, who is also the current chairman of Nasscom.